Is Using Cash Better Than Debit Card?

I received an email from a reader the other day, asking about cash vs. debit cards, and he gave me permission to share with you all. The question was:

If one were to stick to paying cash for everything, would one have a higher tendency to spend more often with cash or with a debit card?

Before I adopted a “no debt” policy, I would have said one would have a higher tendency to spend more often with cash. I used to be the kind of person who couldn’t carry cash around, or I’d spend it. All of it. But I had a credit card to fall back on, so it was really no big deal if I ran out of money. I could always get more, even if I had to pay a nasty interest rate. Yes, that’s how money-dumb I was in my college years.

After I got married, my husband and I used the credit card for emergencies only. I still spent any cash that I had. Having the safety net of the credit card somehow made it easier to spend cash. And since I never really knew the balance of the checkbook, spending actual dollar bills was much safer than using a debit card.

Since I’ve gotten my financial life in order, though, I find that I have a tendency to spend more money with a debit card than with cash. I think there are several reasons.

First, my debit card is always available. When I’m out shopping, I always have my debit card with me. If I see a sale on something I wasn’t planning on buying, I can buy it with a debit card. If I were to use a cash only policy, I wouldn’t be able to buy without cash on me. There are advantages and disadvantages to using either.

On the one hand, it’s nice to have money available in the event that you run across a great sale on something you really need. Paying a sale price is always better than paying full price. On the other hand, if you’re using cash only, you may miss out on some deals if you don’t have the cash. But you will be forced to stop and think about every purchase, which is a good thing. Too often sales aren’t good deals, because you didn’t really need the item to begin with.

Second, using a debit card gives you a sense of somewhat unlimited funds. If you’re grocery shopping with a budget of $100, and your groceries ring up at $105, it’s easy to forget the budget and pay for the entire amount with the debit card. If you only have $100 cash, though, you will have to put something back. I think it’s easier to stick to a budget with cash only.

Finally, since I tend not to spend change, spending cash actually helps me to save money. When I get home from shopping, I put my change into the change jar. If I get 50 cents in change every day, that’s $3.50 a week in the change jar. Or $14 a month. Or $182 a year. If I make a commitment to use the money in the change jar toward paying down debt that $182 has a pretty good impact. If I use a debit card, I don’t have any change to put in the change jar, and that $182 is used on other things.

I will confess that I mostly use my debit card, because it’s convenient. But after writing this post, I’m seriously considering switching to cash. I do think there is a tendency to spend less with cash than with a debit card. Maybe next week I’ll experiment to see if I notice a difference.

What do you think? Do you tend to spend more with cash or with a debit card?

{12 Comments}

Dena:

March 23, 2010 at 11:15 pm

We have been using both debit and cash only for the last 2 1/2 years.DH uses the debit at the gas station.The rest of the things we buy are paid for with cash.It makes it easier for us …now.But in the beginning it took some discipline.I think it’s easier to balance all your categories.You also have to re-define what an emergency is.A sale doesn’t cut it in our house.If you’re running low on groceries at home you can easily put $10 a week away and at the end of the month you have your restock money ready.I can’t imagine doing it any other way now.

My DH used a debit card until some criminals stole about $12,000 from his account by purchasing things at a jewelry store in Egypt. The police think that at some point a duplicate was made of his debit card. Cash only for us from now on!

I use both. I like to have cash on hand but if it’s a big purchase (over $100) or I’m not near my bank’s ATM I’ll use my debit card. It also helps that I have a keep the change program on my debit card where change is put into my savings account and matched up to a point.

Wow – all good answers and lots to think about. As for me – cash is best. I see my debit card as “easy money” until I have to balance my budget. I find myself juggling between accounts to try to keep my budget in line. If I have cash I am much more careful of what I spend because I’m spending in “real time”! Does that make sense?

@Mrs. Micah – I never even thought that people wouldn’t see cash as “real money”, though it does make sense.

@Kim – I think the key is being disciplined enough to only take as much money as you have budgeted to the store with you. Otherwise it is easy to throw some extra things into the cart.

@Adeem – If a person is going to succeed with any kind of budget or spending plan, they need to know what they spend money on. I think one of the reasons I do use debit cards is that I’m lazy, and I can just download the transactions. Using cash would be more frugal, but I’d have to save receipts and track my purchases.

@Heidi – I think it’s great that you can take advantage of credit card rewards and protection. I am not disciplined enough to do that without going into debt, though.

@Christian PF – I like the James Bond illustration. And you’re making me feel old. LOL

For me if I have cash in my pocket I will spend it, but I do the same thing with the debit card. I think the secret is to not have all or a lot of cash on you. Find a place at home to tuck away money that you want to spend on something in particular.

If you know you want to spend $100 at the grocery store tuck that away until you go. If you have that money on you when you run out to pick up a few items at the discount store you are more likely to throw extra things in your cart simply because you have the money in your pocket! Then when you hit the grocery store your grocery budget is short changed or you dip into money meant for something else.

I agree that having ONLY that money on you will help you resist the urge to pick up something you don’t really need or put back that package of cookies.

Man, it looks like cash is sooo 1995!! :) My take on it is, I feel a little bit like James Bond being able to swipe everywhere for everything. But it also makes me feel like Bond to be able to tip everyone a $100 bill. ;) So, I like both for different reasons.

I am one of the few people who hasn’t bought into the idea of a debit card. I actually never got one until my bank did away with atm cards altogether and I had no choice. I also am one of the few people who uses credit all the time. I feel I have way more protection with my credit cards and I get large bonuses that I can use towards my balance, and can track all my purchases by category. I think so long as you watch what you spend (which you have to do with any form of money), credit works just fine.

I’m afraid that I have a harder time seeing cash as real money. Plus I enjoy the convenience of not having to make chance and such. I understand the limiting value of cash and how that’s good, but because I don’t quite see it as real, it’s easier for me to spend it.

Makes no sense, but there you have it. Maybe it’s because I’m a child of the online banking generation.

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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.

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